World Oil Outlook - Opec

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Coast. To the extent that either the TransCanada or Line 9 projects go ahead, they
will enable light sweet and medium sour crude oils out of Eastern Canadian and
possibly also to refineries on the US East Coast.
Uncertainties over key pipeline projects, and steep discounts in US Lower 48 and
Western Canadian crude prices, have spurred the above proposals (and additional
ones) to modify and expand existing pipeline infrastructure, but they have also
led to a growing role for rail. There has been marked growth in Bakken ‘takeaway’
capacity via rail. Faced with a dearth of existing infrastructure in North Dakota,
mainly smaller producers and transport companies in 2009 began a rapid expansion
of rail terminals. These use ‘unit train’ technology (load dedicated 60,000–75,000
barrel trains, often one or more per day) that then move to corresponding receiving
terminals with no stops along the route. Bakken rail takeaway capacity went from
30,000 b/d in 2008 to 335,000 b/d by 2011 and should reach nearly 800,000 b/d
by the end of 2012.
Pipeline takeaway capacity is also expanding rapidly, but what is new here is that
rail is becoming established as an important mode for moving crude oil, at scale,
to multiple destinations. Most delivery terminals for Bakken crude are in the Gulf
Coast, but movements are expanding to both the West Coast and, especially, East
Coast. These movements are taking Bakken production – which recently passed
the 640,000 b/d mark and is expected to go much higher – into mainly coastal US
markets. The new trend for Bakken prices to exceed those for WTI is evidence of
the new-found ‘freedom’ that rail to the coast is providing to the former.
This year (2012) may also be the point when crude movement via rail starts to catch
on as a means to move Western Canadian crudes. Small volumes of Western Canadian
crudes have recently moved to the Western US, the Gulf Coast and the East
Coast, as well as Ontario via rail. What is new is that longer term commitments and
unit train developments are starting to surface – for instance, for the movement of
Western Canadian crudes at scale to the Irving refinery in New Brunswick.
Rail movement via ‘manifest’ train can be three times the cost of pipeline. However,
unit trains narrow the gap and shorten the delivery time. Moving oil sands bitumen
by rail can come even closer to pipeline costs as less diluent is needed; even bitumen
with no diluent can be carried if the rail cars are heated. Given the severe price
discounts on heavy Canadian crudes, rail looks to be an attractive option. Both
pipeline and rail are also tying in with barge movements, notably from the Midwest
to the Gulf Coast, using rail or pipeline for part of the way and then barges down
the Mississippi river for the last leg. Within the Gulf Coast, midstream companies
are also expanding their options to move crudes along the coast (for example, Eagle